Spend Matters welcomes another guest post from Jim Haller of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.
Just before the Thanksgiving holiday, UPS, FedEx, and DHL announced their average price increases for the coming year. Here’s a snapshot:
- Effective Dec. 30, 2013, UPS Ground, Air and International, and Air Freight rates will increase an average of 4.9%.
- Effective Jan. 6, 2014, FedEx Express package and freight rates will increase an average of 3.9%.
- Effective Jan. 2, 2014, DHL Express will raise rates by an average of 3.9% for U.S. customers, and nearly 5% for the Asia-Pacific region.
While this knowledge is valuable for shippers as they finalize 2014 logistics budgets, the information is far from complete and provides limited insight into cost predictions.
NPI’s transportation spend management analysts warn that there is a sizable difference between “average” price increases and the actual cost increases many shippers will experience. Depending on service selection, the rate hike may be much higher for some companies.
Take air services for example. Actual price increases for air freight have historically been steeper than for ground. If we see that pattern continue in 2014, shippers that rely heavily on UPS or FedEx air services may see costs rise more sharply than a 3.9% or 4.9% average increase would imply.
There is also speculation that the highest rate increases will be in lower-priced, less expedited services. This shouldn’t come as a surprise as both UPS and FedEx have publicly acknowledged that more shippers are selecting slower, less costly shipping methods. It’s very probable that carriers will adapt their pricing strategies accordingly so they can recoup resulting revenue losses.
“What can I do to negate these cost increases?” is a critical question shippers should be asking themselves now. Waiting for the sticker shock of first quarter’s shipping expenses is a costly alternative. It’s important that shippers create a cost reduction plan that will optimize rates and service levels to ensure they’re shipping at the lowest cost possible next year.